Question

Question #1: Use the Black-Scholes formula to find the value of a call option on the following stock Time to expiration Standard Deviation Exercise Price Stock Price Interest Rate 6 months 50% per year $50 $50 10% Question #2: Find the value of put option on the stock in the previous problem with the same information above (Hint: there are two ways of calculating such value).

Answer 1

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- 2x Σ AutoSum : A od conditional Format sett insert Delete Format a clear sort & Find a Sort & Filter Editing 2 Clear Find & Select Cells V W X Y Z 50 T = DERIVATIVES BINOMIAL - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri -11AA = = = Dr Wrap Text General Ea Copy Paste Format Painter B I U - D A Merge & Center $ - % 8. Formatting as Table Styles Clipboard Font Alignment Number Styles P125 2 K L M N O P Q S T U 125 126 127 50 128 0.1 129 0 (A) = 0.5 130 0.5 (=6/12] 131 132 133 659 134 135 d1 = [In(50/50) + (0.1 +0.5*(0.5)^2)(0.5)]/(0.5*(SQRT(0.5)] 136 d1 = 0.31820 137 138 139 d2 = d1 - 0* SQRT(T) 140 d2 = -0.03536 141 142 N(d1) = 0.624833 e^(-0.1*0.5)= 0.951229 143 N(02) = 0.485898 d. ln (5/6) + (r+6.58² (1) Sheet2 RISK NEUTRAL Sheet3 Sheet4 Sheets Sheet6 Sheet7 KOM Red BINOMIAL BS ferences BO 130% 0 + S ER 9 * to 10 ENG 05-11-2019

DERIVATIVES BINOMIAL - Microsoft Excel (Product Activation Failed) View Add-Ins - 2x Dr General Wrap Text Merge Merge & Center Center m Find & SF $ - % % 4:0 .00 8. Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill 2 Sort & 2 Clear Filter Editing Select Alignment Number File Home Insert Page Layout Formulas Data Review % Cut Calibri -11AA = = = E Copy Paste B I U - D Format Painter A Clipboard Font L156 к I o 144 145 VALUE OF CALL OPTION = Cells M P a R s T U V W Z 146 n(d, - k.e . N dz) 147 148 149 150 151 VALUE OF CALL OPTION = VALUE OF CALL OPTION = VALUE OF CALL OPTION = 50*(0.624833) 31.24 8.13 50*(0.951229)*(0.485898) 23.11 152 value of first way of finding put option Put option 153 154 155 156 157 158 159 P = koe N(-d2) - S. N(di) VALUE OF PUT OPTION = VALUE OF PUT OPTION = VALUE OF PUT OPTION = 160 50 *(0.951229)*(1-0.485898) 24.4514 5.69 50*(1-0.624833) 18.7584 161 162 N Red H Sheet2 RISK NEUTRAL Sheet3 Sheet4 Sheets Sheet6 Sheet7 0 BINOMIAL BS ferences BO 130% 0 + S ER 9 * to 10 ENG 05-11-2019

DERIVATIVES BINOMIAL - Microsoft Excel (Product Activation Failed) View Add-Ins - 2x Dr General Wrap Text Merge Merge & Center - Center m Find & SF $ % % , 4:0 .00 :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill 2 Sort & 2 Clear Filter Editing Select Alignment Number File Home Insert Page Layout Formulas Data Review % Cut Calibri -11AA = = = Ea Copy Paste Format Painter BI U D- DA Clipboard Font R180 L M second way of finding put option 164 Cells T U V W X Y Z 163 165 Sxe-d+P=Ex e-Rt +C 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 STOCK PRICE EXERCISE PRICE RISK FREE RATE CALL PRICE PUT PRICE DIVIDEND YIELD TIME PERIOD e^(-0.1*0.5) = 50 0.1 8.13 find 0 0.5 0.951229 50 *e^(-0.00*0.5) + P = 50*e^(-0.1*0.5) + 8.13 50 + P = 50*0.951229) + 8.13 50+ P = 55.6915 P= 5.69 BINOMIAL BS Sheet2 RISK NEUTRAL Sheet3 Sheet4 ferences Sheets Sheet6 Sheet7 0 Rea BO 130% 0 + S ER 9 * to 10 ENG 05-11-2019